By NEIL HARTNELL
A SUPREME Court judge has backed assertions by FTX’s Bahamian liquidators that they “have done everything within their power to strike the best possible deal” in settling the dispute with their US counterpart.
Justice Loren Klein, in an initial January 22, 2024, ruling approving the trio’s global settlement agreement with John Ray, head of the 134 FTX entities in Chapter 11 bankruptcy protection in Delaware, revealed that the “urgency” to resolve the cross-border rows overcome his desire to withhold judgment “for a few days”.
Affirming that he will grant all the Orders and permissions sought by Brian Simms KC, the Lennox Paton senior partner, and his fellow FTX Digital Markets liquidators, the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, Justice Klein branded the deal with Mr Ray a “practical” resolution and “in the commercial best interests” of creditors, investors and the company.
FTX Digital Markets was the Bahamian subsidiary for Sam Bankman-Fried’s crypto exchange, which collapsed in November 2022, its founder now awaiting his upcoming sentencing before a New York federal judge after being found guilty of multiple financial crimes following a jury trial.
“The main purpose of the application before this court is to obtain the requisite judicial sanctions to authorise the JOLs [liquidators] to work cooperatively with the US debtors to progress the insolvency proceedings, which are taking place concurrently in the US and The Bahamas, and in particular to resolve juris- dictional issues and enter into various compromises,” Justice Klein wrote.
“Given the multiplicity of sanctions and orders which were sought in your summons, I was tempted to reserve for a few days. But given the urgency of the matter and because I have formed a certain view, I don’t think anything will be accomplished by that.”
Justice Klein added that, based on an affidavit sworn by Mr Simms, as well as evidence provided by Luke Groth, a forensic technologist with PwC’s Hong Kong office, he was “satisfied that I should sanction” the terms of the settlements and agreements reached between the Bahamian liquidators and Mr Ray on December 19, 2023.
“In my view, the global settlement agreement and the ancillary agreements and arrangements necessary to support it represent a practical modus operandi for proceeding with the liquidation by the liquidators, and will be in the commercial best interests of the company and the creditors and customers of FTX Digital Markets,” the judge said.
“And I say that in regard to the novel and complex legal issues raised by this liquidation. In this regard, I have in mind the adversarial proceedings between FTX Digital Markets and the US debtors which are being compromised as a result of the global settlement agreement, the multiple cross-border issues and the concurrent proceedings here and in the bankruptcy courts of Delaware.”
Justice Klein also agreed with the Bahamian liquidators and Mr Ray placing all assets in one single pool for distribution to FTX creditors and investors on the basis that they are so commingled that it is impossible to separate what belongs in which estate and winding-up process - The Bahamas or Delaware.
“I think the evidence clearly supports the conclusion that the liquidators have done everything within their power to strike the best possible deal for the stakeholders in question, and one which is not at all unreasonable in the circumstances. In the circumstances, the court should lend its approval by granting the requisite sanctions,” the judge concluded.
The Bahamian liquidation trio, in a report filed on Monday with the Delaware Bankruptcy Court as part of the Chapter 15 recognition it granted to them in the US, signalled their desire to move on quickly to adjudicating creditor claims and returning assets to customers now that peace with Mr Ray has been sealed via the approval of both courts.
“With the settlement approved and authorised by both this court and the Bahamas court, the foreign representatives look for- ward to collaborating with the Chapter 11 debtors in the monetisation of assets and adjudication of customer claims with the goal of making distributions to creditors of both estates quickly and efficiently,” Mr Simms and the PwC duo said in their report to Judge John Dorsey.
“The foreign representatives will begin their processes for claims reconciliation, realisation of assets (for example, avoidance actions), and making distributions to creditors/customers in co- ordination with the Chapter 11 debtors.”
Further evidence that the Bahamian liquidators want to move quickly on claims processing comes from the fact that FTX Digital Markets’ website was last reconfigured to enable creditors to provide their main contact details.
Both they and Mr Ray, as part of their now-court sanctioned deal, have agreed to use best efforts to employ similar asset valuations and settlement offers when assessing/ granting creditor claims in their respective liquidation proceedings.
And the Bahamian trio will “take the operational lead in managing the value-maximising disposition of real estate and other assets in The Bahamas”, some $256m having been invested in around 35 high-end local properties. Mr Ray and his team will lead all asset recovery elsewhere, including the possible sale of FTX’s exchange platform technology and related intellectual property rights.
The Bahamas will also spearhead “pursuing specific litigation and avoidance actions identified in the global settlement agreement as part of the ongoing efforts to maximise recoveries for customers and creditors”, which seems to imply Mr Simms and the PwC duo will be in charge of efforts to recover the $100m obtained by 1,500 “Bahamian” customers in violation of the asset freeze when FTX imploded.
Mr Simms, in a January 12, 2024, affidavit filed with the Supreme Court alleged it is “extremely unlikely that more favourable terms could be achieved” with Mr Ray given that the Bahamian liquidation is in a “much weaker financial position” than their Chapter 11 counterpart.
While he and his fellow FTX Digital Markets liquidators have “repeatedly pushed back” against “unacceptable” offers by the FTX US chief, Mr Simms signalled that “limited assets” presently available to the trio would be exhausted by continuing their courtroom fight “with no end in sight”.
With the Bahamian trio controlling just 30 percent of the local subsidiary’s cash assets, due in large measure to the US Justice Department’s seizure of $143.2m from its US accounts in late 2022, the Lennox Paton senior partner conceded that assets available to pay creditors would ultimately be exhausted by the legal sparring and they would have to seek litigation financing that comes with its own risks.
And customer and FTX group assets and liabilities are “so commingled” and “inextricably intertwined that it would be practically impossible”, in addition to creating enormous delays and costs, to try and “unravel” what belongs to which liquidation estate - The Bahamas or Delaware.